Accounting Multiple Choice Question – 12 May 2022

An extract from a company’s statement of financial position showed the following information.

• issued capital: 2 million ordinary shares of £0.50 each – £1,000,000
• share premium – £600,000
• retained earnings – £2,400,000

The directors have agreed to make a bonus issue of 3 ordinary shares for 4 shares held. They wish to maintain reserves in their most flexible (distributable) form.

Which debit entry should be made in the retained earnings account?

Select ONE answer:

1. £150,000
2. £750,000
3. £900,000
4. £1,500,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct ==> 2,000,000 shares * ¾ = 1,500,000 new shares or £750k  £600K from share premium & balance of £150k from retained earnings.
2. Not correct
3. Not correct
4. Not correct

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